The Jones Act under NAFTA

The Jones Act under NAFTA

This week Irving Shipbuilding announced it won the contract to build one, possibly two, small cruise ships for American Cruise Lines (ACL). It is a rare piece of good news for the beleaguered, but once prosperous, Canadian shipbuilding industry.

There was a time when Canada was considered one of the greatest shipbuilding nations in the world. No more. So can it be revived and what needs to be done to make that happen?

Dr. Mary Brooks takes a look at part of that puzzle in The Jones Act under NAFTA and its effects on the Canadian Shipbuilding Industry. This research paper, published by the Atlantic Institute for Market Studies (AIMS), says that the existence of the shipbuilding tariff has been of little value to the shipbuilding industry and it has actually given rise to distortions in the Canadian marine transport market.

“No other Canadian transportation mode is required to pay a similar duty on imported capital assets. The high cost of acquisition of ships, either through domestic construction or payment of duty, damages the competitive position of Canadian domestic shipping in relation to alternative international trade movements. Furthermore, the question about how much that currently moves by truck and rail could be switched to the more environmentally friendly marine mode cannot be answered while the modal distortion remains.”

Brooks, who holds the William A. Black Chair of Commerce at Dalhousie University, points out, “The Canadian shipbuilding industry has been effectively excluded from selling vessels to be used in American coasting trades by the Jones Act (the Merchant Marine Act of 1920) and its subsequent revisions. This protection of coasting trade is contrary to the overall liberalized trade intentions of the two primary trade agreements Canada has with the United States (US).”

She suggests a gradual phase out of the 25% tariff and a commercial regional seas strategy complementing an external security perimeter as a rational for the mutual removal of Canadian and American cabotage legislation.